Service industries in U.S. grow at slower pace than forecast

Service industries in the U.S. expanded at a slower pace than forecast in December as orders contracted for the first time since 2009, showing uneven progress in the biggest part of the economy.

The Institute for Supply Management’s non-manufacturing index decreased to a six-month low of 53 in December from 53.9 in the prior month, a report from the Tempe, Arizona-based group showed today. The median projection in a Bloomberg survey of economists was 54.7. Readings above 50 indicate growth in the industries that make up almost 90% of the economy.

Orders shrank in 11 industries, including real estate, as higher interest rates threatened to slow the pace of home buying that’s been a source of strength for the economy. At the same time, manufacturing expanded last month at the second-fastest rate since 2011, job gains are sustaining household spending and companies have some clarity from Washington after lawmakers reached a budget compromise.

“There’s still a valid question of the impact of rising interest rates on the broader economy -- though housing is still expanding, the pace of growth is decelerating,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. Even so, “the economy is clearly gaining momentum. It’s not the first time in this recovery that we’ve seen that, but this time, it seems that there are less headwinds that could derail the momentum.”

Economists’ Forecasts

Estimates in the Bloomberg survey of 69 economists ranged from 53 to 57.7. The group’s measure includes industries that range from utilities and retail to health care, housing and finance. The non-manufacturing index averaged 54.7 last year, compared with 54.6 in 2012 and the strongest reading since 2006.

Stocks fluctuated after the services report and another that showed factory orders climbed in November. The Standard & Poor’s 500 Index rose 0.1% to 1,833.49 at 10:23 a.m. in New York.

Orders placed with U.S. manufacturers increased 1.8% in November after a 0.5% decline a month earlier that was smaller than initially reported, Commerce Department data showed today.

The ISM’s measure of new orders in the service industries decreased to 49.4 last month, the lowest since May 2009, from 56.4 in November. Among industries other than real estate reporting declining demand were mining, transportation and warehousing, food services and entertainment and recreation. Six industries reported growth in orders, including retail trade, construction and finance.